EconoBytes - Monday, August 20, 2012
EconoBytes is a quick daily economic roundup for journalists, sponsored by the Roosevelt Institute and compiled by Fenton Communications. We bring together blogs, analyses, and studies by progressive economists, policy experts, and think tanks on the most pressing issues in the current public economic debate. To subscribe to EconoBytes, email firstname.lastname@example.org.
Monday, August 20, 2012
Today, economist Josh Bivens of the Economic Policy Institute corrects fundamental confusions in discussions of the budget deficit and Medicare, as well as the false notion that the U.S. risks bankruptcy.
The large increase in budget deficits in recent years has been driven entirely by the Great Recession (and its aftermath) and the explicitly temporary policy responses passed in its wake.
· In 2006 and 2007—even after the Bush tax cuts, wars fought with no dedicated funding and the passage of a deeply-inefficient Medicare drug program that also had no funding source—budget deficits averaged around 1.5 percent of total GDP, levels that no economist would argue are evidence of a crisis.
· After the Great Recession and the temporary policy responses passed in its wake, these deficits swelled to closer to 10 percent of gross domestic product—levels that people commonly refer to as “scary.” They are “scary” numbers, but only because they’re indicative of the depth of the economic crisis we’ve been through.
· Job one in economic policy—particularly in regards to fiscal policy—should be to solve the joblessness crisis. And when the economy is healthy again, the vast majority of the increases in budget deficits seen in recent years will fade away.
It is the failure of our private health sector to constrain per beneficiary costs that is the entire cause of projected long-run budget deficits, not Medicare.
· If health spending rose as fast as the overall economy, long-run budgets would show significant surpluses.
And the budgetary challenges facing Medicare are not a demographic problem:
· Pundits and even many policymakers define the problem driving projected long-run deficits as “entitlements,” by which they mean Social Security, Medicare and Medicaid, and they frame this problem as one driven inevitably as a problem of demographics—as Americans age, the programs that provide them income and health security will grow.
· There is a one-time boost to levels of spending on the retirement security programs stemming from the Baby Boomers’ retirement—but this one-time boost is modest and does not grow. The extra spending we’d need to afford it is less than the increase in defense spending we undertook between 2001 and 2005.
Instead, the entirety of the “entitlements” problem is the rise in spending on the health programs, and the entirety of this rise is driven by per beneficiary health costs far exceeding the growth of the overall economy.
The US is not going bankrupt. This claim mistakenly conflates the federal budget deficit with the US economy writ large.
· On average, the U.S. economy over any long period of time has been (and will be, absent some catastrophe) growing acceptably fast.
· The problem is inequality: very few American households have actually experienced this “average” growth, since incomes at the very top have grown extraordinarily rapidly and absorbed vastly disproportionate shares of income growth in recent decades.
Special thanks to Josh Bivens at EPI for today’s EconoBytes.
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